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Lecture Risk management and insurance - Lecture No 29: Employee benefits: Retirement plans

This chapter’s objectives are to: Fundamentals of private retirement plans, defined benefit plans, defined contribution plans, profit-sharing plans, retirement plans for the self-employed, simplified employee pension, simple retirement plans, funding agency and funding instruments. | Employee Benefits: Retirement Plans Lecture No. 29 1 Objectives Fundamentals of Private Retirement Plans Defined Benefit Plans Defined Contribution Plans Profit-sharing Plans Retirement Plans for the Self-Employed Simplified Employee Pension Simple Retirement Plans Funding Agency and Funding Instruments 2 Fundamentals of Private Retirement Plans Private retirement plans have an enormous social and economic impact The Employee Retirement Income Security Act of 1974 (ERISA) established minimum pension standards The Pension Protection Act of 2006 also has had a significant impact on private pension plans Private plans that meet certain requirements are called qualified plans and receive favorable income tax treatment The employer’s contributions are deductible, to certain limits Investment earnings on the plan assets accumulate on a tax-deferred basis 3 Exhibit 17.1 The Benefits of Starting Early in a Tax-Deferred Retirement Plan 4 Fundamentals of Private Retirement Plans A qualified . | Employee Benefits: Retirement Plans Lecture No. 29 1 Objectives Fundamentals of Private Retirement Plans Defined Benefit Plans Defined Contribution Plans Profit-sharing Plans Retirement Plans for the Self-Employed Simplified Employee Pension Simple Retirement Plans Funding Agency and Funding Instruments 2 Fundamentals of Private Retirement Plans Private retirement plans have an enormous social and economic impact The Employee Retirement Income Security Act of 1974 (ERISA) established minimum pension standards The Pension Protection Act of 2006 also has had a significant impact on private pension plans Private plans that meet certain requirements are called qualified plans and receive favorable income tax treatment The employer’s contributions are deductible, to certain limits Investment earnings on the plan assets accumulate on a tax-deferred basis 3 Exhibit 17.1 The Benefits of Starting Early in a Tax-Deferred Retirement Plan 4 Fundamentals of Private Retirement Plans A qualified plan must benefit workers in general and not only highly compensated employees, so certain minimum coverage requirements must be satisfied Under the ratio-percentage test, the percentage of non-highly compensated employees covered under the plan must be at least 70% of the percentage of highly compensated employees who are covered Under the average benefits test: The plan must benefit a reasonable classification of employees and not discriminate in favor of highly compensated employees The average benefit for the non-highly compensated employees must be at least 70% of the average benefit provided to all highly compensated employees 5 Fundamentals of Private Retirement Plans Most plans have a minimum age and service requirement that must be met Under current law, all eligible employees who have attained age 21 and have completed one year of service must be allowed to participate in the plan Normal retirement age is the age that a worker can retire and receive a full, unreduced pension .